Tuesday, November 06, 2007

Rents deliver a knockout blow

UAE residents are reaching breaking point over the country's mounting rents. In an effort to cut costs, people are moving to cheaper homes, sending their family home or changing their lifestyle. Some have even considered turning their backs on the UAE.

Almost a third of respondents to a survey on UAE accommodation said rent increases have forced them to move out of their home in the past 12 months, while two thirds said the general cost of living has made them consider abandoning the country altogether.

Responding to a YouGov survey commissioned by Gulf News, 64 per cent of Asians said they have considered leaving for good, compared to 70 per cent of Arab expats and 74 per cent of Westerners. Even a quarter of Emirati respondents said they have thought about turning their back on the UAE and 30 per cent said they have been forced to move house within the country in the past 12 months.

The overall response suggests that unless the inflated cost of UAE living is addressed, an exodus is a worse case, but realistic, scenario. The YouGov survey was based on 513 respondents with a representative sample from each nationality grouping, 59 per cent living in Dubai, 20 per cent in Sharjah and 14 per cent in Abu Dhabi.

The figures show that rent is by far the primary cause of residents' concerns. 70 per cent of those renting said they have contemplated leaving, compared to 43 per cent of home owners. When asked whether increasing rents have led them to this view, as opposed to price inflation of other living costs, more than half of all respondents said yes. Almost one in five said they have moved to another emirate, a figure which suggests some success in northern emirates' efforts to bill themselves as a cheap alternative to Dubai. Although some residents will go as far as moving house or leaving the UAE, most will try to adapt their lifestyle to accommodate the cost of renting accommodation. Asked what options they would seek if rent becomes too much to bear, a third said they would move to a smaller home. The response indicates strong demand for low-cost studios and one- or two-bedroom flats - an undersupplied sector of the housing market which real estate developers are only now beginning to turn to. Around a third of all respondents said they would consider moving out of city centres, 26 per cent said they would cut expenditure on other things and 20 per cent said they would share with other people.

The statistic reveals that some people who arrived in the UAE expecting to live a high standard of life in good quality city accommodation are being disappointed. For those with large families, the cost of rent can be much more than just a financial burden. The survey revealed that some families are being broken up as a result of rent increases. 15 per cent of all respondents said they have been forced to send their family back to their home country. Cases of split families were more frequent among Asian respondents (23 per cent) than Westerners (3 per cent), Emiratis (14 per cent) and other Arabs (14 per cent). A break-down of residents' monthly expenses reveals the extent of the rental burden. A staggering one in every five respondents pays more than half of their monthly income on rent. Expat Arabs (19 per cent) and Asians (14 per cent) are the most likely nationalities to do this. One of the main options to paying high rents is to buy property. The survey reveals that this is one the key driver in encouraging people to buy with one in four saying they have bought to avoid renting -good news for the mortgage market. Emiratis are the most likely to do so, perhaps indicating that they are in the best position to buy. In terms of property ownership, close to nine in ten respondents rent their home and of those who own, 57 per cent own outright while the remaining 47 per cent have a loan/mortgage against it.

To combat UAE rental inflation, all seven emirates have introduced caps on rent increases for renewed tenancies. According to the results of the YouGov survey, residents have mixed feeling on the move's effectiveness. Only 9 per cent said they have been very effective, 40 per cent considered the move slightly effective and 41 per cent viewed them as slightly or very ineffective. The mode rent cap recommended is 5 per cent per year. Key to residents' doubts over caps could be a tendency among landlords to evict tenants whose contracts are up for renewal, allowing the landlord to negotiate a rent with a new tenant, which would not be restricted by the cap - a trend which the UAE is tackling. Despite governmental intervention in the rental market, three quarters of respondents called on it to play a stronger role in controlling rate increases. Unsurprisingly, 80 per cent of those renting were in favour of stronger government intervention, compared to just 57 per cent of those who own (and perhaps rent out) property - a sign that landlords prefer rental rates to be dictated by market forces.
Looking ahead to next year, the outlook is grim among residents. More than eight in ten think rents will increase in 2008, with only four per cent expecting them to fall. Views are mixed among nationalities. Only 58 per cent of Emiratis expect a rent hike, compared to 95 per cent of westerners, 78 per cent of Asians and 77 per cent of Arab expats. The situation portrayed by the YouGov survey will not come as a surprise to the UAE population, but we now have the figures to support people's concerns. Residents are awaiting the country's response.

Source: GulfNews

Saturday, October 06, 2007

Dubai rents set to soar 26.5%

Tenants in Dubai have another two years of rocketing rental prices to look forward to before the housing market begins to subside, investment bank EFG-Hermes said on Tuesday.The cost of accommodation will soar between 10 and 15% this year and by up to 10% in 2008 before prices start to decline in 2009, the Egyptian firm said.“Supply in the residential property market is and will continue to be constrained in 2007,” Sana Kapadia, Research Analyst at EFG-Hermes, said in a statement.

“We predict that the peak year for supply will now be 2009 - meaning that the market is unlikely to see a price decline before this occurs.”

EFG-Hermes said Dubai’s real estate market has witnessed a far slower pace of completed project handovers so far in 2007, with approximately only 11,000 units of the expected 57,000 units coming on stream.

The investment banks said this has caused supply to continue to lag behind demand. This supply lag has led to revised housing unit supply forecasts for the next three to four years, with estimates of 25,000 housing units for the whole of 2007, 64,000 in 2008, and 68,000 in 2009, the firm said.

The effect of the delay in units coming on line is being compounded by population growth in Dubai.

EFG said that based on the assumption that the population of Dubai will rise to almost 1.9 million by 2010, up from 1.4 million currently, demand now calls for 45,000 to 50,000 new units per annum. The firm predicts prices will begin to fall in 2009, culminating in a decline of between 15 and 20% by 2011. However the extent of the price correction will depend on the pace at which new units are delivered, it said.

Authorities in Dubai are also pushing hard to bring down the cost of accommodation due to its affect on inflation. The UAE's inflation rate rose by a third last year to 9.3%, driven by the rising cost of accommodation.

The plummeting value of the US dollar, which the UAE and four other of the six GCC member states have their currencies pegged to, has also added to inflationary pressures by pushing up the cost of imports from places like Europe. The fall in the dollar forced Kuwait to depeg its dinar from the US currency in an effort to control inflation, and since then speculation has been rife that other GCC countries will follow suit.

The six GCC members - The UAE, Saudi Arabia, Bahrain, Kuwait, Qatar and Oman - all pegged their currencies to the dollar in a move set to pave the way for a single GCC currency by 2010 - a deadline that the GCC is looking more and more unlikely to meet.

Speculation reached fever pitch this week following the US Federal Reserve decision to cut interest rates for the first time in more than four years, forcing a number of Gulf countries to do the same. The UAE dirham held near a 5-year high on Monday as speculation Saudi Arabia might revalue its currency, which hit a new 21-year high against the dollar on Tuesday, spilled over into other Gulf Arab oil producers that also peg their currencies to the dollar. Dirham bids were as strong as 3.6685 per dollar, the strongest since November 2002.

Source: Arabian Business

Thursday, October 04, 2007

Dubai moves to calm soaring rental prices

The emirate will soon facilitate lands to develop low-cost housing for Dubai's middle class to tackle the current housing shortage and tame rent-related inflation, a top government official said on Tuesday.

Marwan Bin Galita, chief executive of the newly formed Real Estate Regulatory Agency (Rera), told Gulf News in an interview the agency was all set to finalise a three- to five-year tenancy agreement so that the tenants can tackle the rising rental costs.

"It will be a model tenancy agreement in which all the rights and privileges of the tenants will be reserved. We will ensure that everyone strictly adhere to the contracts," he said.

"The long term contracts will be transparent and fix the rents for that period and help the tenants in coping with rising rental costs."

However, these contracts may not be mandatory, but to help the consumers, he said. "We do not want to police the market, rather allow the market forces to reshape in a more professional manner. We will try to enforce this," he said.

Experts say a big part of the problem is that the demand for housing in the emirate remains significantly larger than what is available in the market.

Project delays have deprived the market of 300,000 housing units, according to Syed Ali Anwar, chief executive officer of 3D Venture Real Estate.

"These projects have been delayed by at least one year and will only be ready by December 2009. Some are facing construction delays because of rising material costs, others never got started after being announced," he said.

"The current demand is for 100,000 apartments but we include the number of people who will be coming to Dubai by 2009, then we will require 200,000 more units."

The continued economic growth means demand for housing units will continue to remain strong, says Bermak Besharaty, chief executive officer of Al Mas Capital, a company advising on real estate finance deals.

"There was some overbuilding in the luxury sector. There was not enough building in the middle and lower income segments. More developers are realising this."

To counter that, Rera is developing a comprehensive Real Estate Index to assess the market and make recommendations to the government on proposed regulations, said Bin Galita.

"We have began collecting data on the housing supplies and projected demand to complete the assessment which should be completed by the end of this year," he said.

Based on data, he said, Rera will make a set of recommendations to the Dubai government in which facilitating the low-cost housing would figure prominently.

"Dubai definitely needs to facilitate low-cost housing to support the middle class like any other cities and we will definitely recommend measures to facilitate this," he said.

"Already, a number of leading developers have come forward to launch low-cost housing schemes that will help tame the demand." Bin Galita also stressed that Dubai was in need for a property arbitration centre, he said.

"Although the number of rent disputes will reduce drastically once the long-term tenancy comes into effect, the time is right for Dubai to set up a property arbitration centre," he added. "The rent committee may not be enough to tackle everything."

Source: GulfNews

800 new residents setting up home in Dubai every day

House rents in Dubai, the single largest worry among the majority of the emirate's 1.3 million residents, will continue to appreciate in the coming years due to the influx of a whopping 292,000 new entrants - employees and residents every year, officials said yesterday.
Although the market showed signs of softening in recent past, the issuance of more than 800 work and residence visas per day will continue to push the demand upwards, they say.
At this rate, the population of Dubai is to grow at 22.46 per cent, doubling in about four years. The 44,000 new housing supplies in the UAE this year would be inadequate compared to the requirements.

While this might be a good news for investors, developers and landlords, it may not go down well with tenants who are struggling to make both ends meet, making life in Dubai dearer. Abu Dhabi scheme "Some apartment prices in the UAE have already settled in 2007 with a downward adjustment of close to 10 per cent. However, with increasing interest in Dubai as a business location, with inflation remaining high and interests rates remaining low for the foreseeable future coupled with an increase in mortgage business, we believe there is still a strong outlook for positive growth in the medium and long-term," Shahid Umerani of JAJ Consulting, told members of Dubai Quality Group yesterday. The indications come as an alarm bell to Dubai's marginalised middle income group, many of whom are either sending families back home or gradually moving to neighbouring emirates. This will also put pressures on companies' bottomlines as demand for salary hike is going to intensify in the coming months.
The rent cap has failed to make a dent in the alarming situation. Sensing this, Abu Dhabi yesterday announced a new housing scheme for bachelors with a capacity of up to 110,000 people, reflecting a shift in future demographics.

However, there could be ray of light at the end of the tunnel. "Rents would likely have to come down in the near term as they were getting out of reach of the majority of Dubai residents," the panel concluded. But the core property market still had room for healthy growth over the next few years, with no need for a major correction, they said. Key figures 292,000 new residents are entering Dubai every year22.46% is the rate of population growth in Dubai if this influx is taken into account 44,000 new housing units in the UAE this year would be inadequate to meet the demand.

Source: GulfNews